Each January, we hear a chorus of pundits making predictions about where the markets will go in the 12 months ahead. The number and volume level of the "predictions" is matched only by the utter lack of evidence to back them up.
These talking heads will be the first to shout "I told you so!" But when they get it wrong, well… the silence is deafening. Their predictions are of little use to us.
But predictions themselves can be very useful. Making a well-reasoned prediction can be a great way to crystallize your thinking on important issues. It's also a good filter that can help you select which trends and sectors to embrace – and which to avoid – over the year ahead.
With this in mind, I have three predictions, all backed by compelling evidence, that will surprise you… and help you make a lot of money this year.
U.S. Stocks Will Continue with Double-Digit Gains
The Prediction: The S&P 500 will finish 2014 at 2,033 – about 10% higher than its closing value on Jan. 15.
The Evidence: The S&P 500 is coming off its best year since the bull market of the 1990s, as the domestic index vaulted nearly 30% in 2013. Given how big that gain was, can stocks really continue to rise in 2014? I mean, how much gas is left in this market's tank?
The answer is plenty. Here's why:
While the Federal Reserve has embarked on a "taper" of its quantitative easing program, I suspect that a Janet Yellen-led Federal Reserve will taper gradually. More importantly, the Fed's zero interest rate policy will remain in place for the entirety of 2014 – and likely well into 2015. The historically low cost of capital will provide sufficient liquidity for this market to keep moving higher, particularly over the next 12 months.
Then there are earnings. I expect they'll be strong in 2014.